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The problem of how to tackle poor performing NHS trusts has dogged the NHS for many years. Companies that fail can be put into liquidation, factories close down, and people lose their jobs. However, a failing hospital is not a factory. An overspending hospital cannot “fail” and be closed because that would leave local people without acute health services.

Traditionally the NHS has changed key management roles at failing hospitals in an effort to turn them around. However that model has its limitations, and so a new structure of “trust special administrators” was brought in by the Health Act 2009. That introduced a new chapter 5A into the National Health Service Act 2006.

The regime of trust special administrators

A trust special administrator (“TSA”) has many similarities to an administrator of a private company appointed under the Insolvency Act 1996. The TSA takes over the role of the chairman and board of the trust and so is able to exercise management powers to run the trust. The TSA is allowed to bypass the usual extensive consultation requirements when making changes to the services provided by the trust.

However the TSA is also required to follow a truncated consultation process before preparing a plan setting out the action that he recommends the secretary of state (or Monitor in the case of a foundation trust) should take “in relation to the trust.” The meaning of the phrase “in relation to the Trust” was the focus for a landmark case in the Court of Appeal in November 2013 concerning the future of Lewisham Hospital.

The TSA process for South London Healthcare NHS Trust

The Lewisham Hospital case concerned South London Healthcare NHS Trust (“SLHT”), which had five PFI schemes and was losing £1m per week. Appointing a TSA was clearly the right thing to do. The secretary of state appointed Matthew Kershaw, now the chief executive of Brighton and Sussex University Hospitals NHS Trust, to be the TSA. The London SHA saw this TSA process as a chance to reconfigure acute services beyond SLHT because of the prevailing view that too much of the NHS resources in London were taken up in too many smaller hospitals. The agenda of fewer, bigger hospitals and more community services has many supporters.

Against this policy background it was not a vast surprise when Mr Kershaw came to the conclusion that SLHT’s problems could not be solved by just reconfiguring services at the hospitals run by that trust. He decided a wider reconfiguration was needed across the whole of south east London to make the local NHS financially and clinically sustainable, and to deliver on new clinical standards (even though these were not in fact being delivered anywhere else).

While there was intense debate about the merits, or otherwise, of this approach, this was a legal case about powers and not about the merits of hospital reconfiguration. The TSA was warned he had no powers under chapter 5A to make decisions about changes outside SLHT, but he appears to have been given different legal advice. The TSA pressed on and recommended the secretary of state to make a series of changes at other hospitals across the SE London area.

The main casualty of this plan (sorry for the pun) was University Hospital Lewisham, which was run by a wholly different NHS trust, Lewisham Healthcare NHS Trust. Lewisham had virtually no PFI schemes and had not yet become a foundation trust. This meant it could still be required to follow directions made by the secretary of state.

Under the TSA plan, University Hospital Lewisham was due to be changed from a fully functioning acute hospital into an urgent care centre and to become an NHS elective operation factory for the whole of South East London. The local population in Lewisham were in uproar at the suggestion that they should lose their hospital to make up for the financial mismanagement of the neighbouring trust. A Millwall football match even changed its kick off time to allow supporters to go to a “Save Lewisham Hospital” march.

The issue the TSA plan failed to address

But the TSA plan failed to address an important question: “What was the source of the legal power for the secretary of state to make decisions about services provided by NHS bodies other than the trust in special administration?”

The secretary of state took his own legal advice on that issue and then made his decision in January 2013. He broadly supported the TSA’s recommendations for wholesale reconfiguration across SE London, subject to relatively minor changes to bring more acute services back to Lewisham. His decision was challenged in two judicial reviews which were heard at the same time. One judicial review was commenced by the local authority, Lewisham Council and the other by the Save Lewisham Hospital Campaign. The decision of the secretary of state was quashed by the High Court in July 2013 and the secretary of state’s appeal to the Court of Appeal was rejected by the Court of Appeal in November 2013.

What did the court decide?

The courts decided that the power of the TSA to make recommendations to the secretary of state “in relation to the trust” was only exercisable in relation to the trust which was in special administration. It followed that the secretary of state’s decision making power was equally limited. The court said that the TSA scheme brought in by the Health Act 2009 only gave the Secretary of State decision making powers in respect of SHLT but not in respect of Lewisham Healthcare NHS Trust. It followed that the TSA plan to reconfigure acute services across the whole of south London was ultra vires because these were not decisions made “in relation to the trust” which was in special administration.

So the wider reconfiguration plan was abandoned and local decision making was upheld. This meant that the trust board at Lewisham, working with the local NHS commissioners, were sole decision makers about which services should be provided at University Hospital Lewisham.

The case focused on the law in January 2013 before many of the changes brought in by the Health and Social Care Act 2012 took effect in April 2013. The legal landscape has, of course, changed markedly as a result of the introduction of clinical commissioning groups from April 2013. The TSA structure was markedly changed by the 2012 Act, but the powers of the TSA are still expressed to be “in relation to the trust” which is in special administration.

The amendments to the Care Bill

The government then sought to amend the TSA regime by introducing amendments to the NHS Act 2006 through the vehicle of the Care Bill. These have been passed in the Lords, but await debate in the Commons. Somewhat embarrassingly for the government, these amendments came to be debated and voted on before the Lewisham case was heard at the Court of Appeal.

The amendments proposed widening the scope of the TSA process as follows:

“The references in this chapter to taking action in relation to an NHS trust include a reference to taking action, including in relation to another NHS trust or an NHS foundation trust, which is necessary for and consequential on action taken in relation to that NHS trust”

However, the amendments still do not make it clear whether the TSA process gives powers to the secretary of state to become the decision maker in respect of other NHS bodies or whether the TSA process is simply procedural, leading the Secretary of State to the position where he can exercise powers under other statutes. It leaves open the question “what is the source of the decision making powers.”

Before Silber J the position of the government appeared to be that the TSA process gave the secretary of state decision making powers to override the views of the boards of a trust or a CCG. However, the position was changed in the Court of Appeal because leading counsel for the secretary of state specifically conceded that the TSA process created no new powers for the secretary of state. All it did was to provide a truncated procedure, which led to the secretary of state being able to exercise the powers that he has under other parts of the NHS Act.

In January 2013 that approach worked in law because the secretary of state could issue directions to the PCT and Lewisham Trust under section 9 of the NHS Act. But today the situation is very different. The secretary of state has no power to issue directions to CCGs. The whole scheme of local decision making under the 2012 Act means that CCGs cannot be dictated to by either the secretary of state or NHS England.

The direction making power is retained for NHS trusts but most acute services are now provided by NHS foundation trusts. The secretary of state has never been able to issue directions to NHS foundation trusts.

There are two possible outcomes. Firstly, through the TSA regime the secretary of state has for the first time taken direction making powers to override the authority of boards of foundation trusts. If this is the right interpretation, the secretary of state will be able to order a foundation trust to close down a viable A&E department in order to direct patients to a neighbouring NHS trust. Secondly, the secretary of state does not have this power in which case the amendments to the Care Bill will not be legally effective.

The philosophy behind the 2012 Act was to create an NHS where decisions about NHS services were taken locally and not in Whitehall. The present secretary of state is now living with the consequences of that policy decision, and having to address how this works out when the problems in an NHS area are far wider than one locality.

The present amendments to the Care Bill seem to assume that, as part of the TSA process, the secretary of state has powers to take over decision making for autonomous NHS bodies. However that may well be an illusion because those powers simply do not exist. Alternatively, with the support of the foundation trust network, the secretary of state has taken extensive new direction making powers to reconfigure services at viable foundation trusts by the back door.

David Lock QC was instructed by Leigh Day acted for the Save Lewisham Hospital Campaign in the High Court and the Court of Appeal.

David Lock is a barrister and QC, No5 chambers. He is a board member of Brook Sexual Health, a member of the BMA Ethics Committee, and a Honorary Professor at University of Birmingham.

Competing interests: I am a member of the Labour Party and chair the West Midlands Branch of the Labour Finance and Industry Group. I am due to become a non-executive board member of Heart of England NHS Foundation Trust, which is due to start on 1 June 2013. My wife is a doctor who is employed by Worcestershire Partnership NHS Trust.